News / Business

Global oil prices increase as Iran-Saudi tensions soar

Monday, 04 January 2016 5:03 PM [ Last Update: Monday, 04 January 2016 5:03 PM ]

Oil prices rose at global markets on Monday over concerns about threats to Middle East oil supply as tensions continued to soar between OPEC heavyweights, Saudi Arabia and Iran.

Oil prices have risen at global markets over concerns about threats to Middle East oil supply after Saudi Arabia announced it was cutting diplomatic ties with Iran.

Following the announcement on Monday and at about 1230 GMT, price of US benchmark West Texas Intermediate for delivery in February rose 30 cents to be sold at USD 37.34 a barrel, AFP reported.

Meanwhile, price of Brent North Sea crude for delivery in February also increased 59 cents to stand at USD 37.87 a barrel compared with Thursday's close.

Referring to the sudden oil price rise, Mike van Dulken, head of research at Accendo Markets, noted that "geopolitical tensions in the Middle East are adding to existing volatility in the price of oil."

The developments came as tensions continued to soar between two major crude oil producer and OPEC heavyweights, Iran and Sunni Arab, on Monday as Riyadh and its major Persian Gulf allies, including Bahrain and the United Arab Emirates, cut or downgraded diplomatic ties with Tehran in a row over Saudi execution of a prominent Shia cleric, Sheikh Nimr al-Nimr.

Saudi Arabia executed Sheikh Nimr along 46 other people in defiance of international calls for the release of the prominent Shia cleric and other jailed political dissidents in the kingdom.

High-ranking Iranian officials, including the Leader of the Islamic Revolution Ayatollah Seyyed Ali Khamenei and Iran's President Hassan Rouhani slammed Saudi Arabia for the execution of the Shia cleric, with Ayatollah Khamenei describing the killing of the cleric as a political mistake on the part of the Saudi government.

"Oil started the new year on the mend, as... markets reacted to fears that geopolitical tensions in the Middle East may threaten the supply of oil," said Bernard Aw, market strategist at IG Markets in Singapore.

Despite the sudden rise in global oil prices, Aw argued that persistent global crude oversupply will continue to weigh on prices over the long term.

"Unless we see a convincing drop in oil output from these two nations, and the broader oil-producing community, the supply glut issue will persist, which means oil prices would remain under pressure for a longer period," he told AFP.

During its meeting last month, the Organization of the Petroleum Exporting Countries, which has 13 members including Saudi Arabia and Iran, decided not to slash its high output levels despite drastic fall in global oil prices. OPEC argued that the decision was made in a bid to maintain oil market share in the face of competition from North American shale oil output.

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